Private Loan Modifications Decline

By:: Kirk Haverkamp | December 14, 2010

Loan modification activity took a substantial drop in October, but it’s too soon to say whether it’s related to the robo-signing controversy or any other ongoing trend, according to at least one leading industry expert.

Proprietary loan modifications – those done privately by lenders on their own terms, rather than through a government program – fell by nearly 14 percent in October, according to figures recently released by the HOPE NOW alliance. Lenders privately modified 100,850 mortgages during the month, down from 116,764 in September.

Proprietary modifications had been running around 110,000-120,000 for the last five months, dating back to May 2010.

Meanwhile, foreclosure actions dropped sharply during the month, with foreclosure starts falling to 205,000, down from 245,000 in September, while completed foreclosure sales fell to 69,000 in October, a 40 percent drop from 118,000 the month before.

Faith Schwartz, HOPE NOW executive director, said the drop in foreclosure activity was likely due to several large lenders suspending foreclosures to investigate documentation issues. The “robo-signing” controversy emerged when it was learned that several banks were taking shortcuts in processing legal documents in foreclosures.

“There were anomalies in the October data that affected 60 day plus delinquency, as well as foreclosure, metrics which we believe may be largely attributed to widespread foreclosure delays across the country,” Schwartz said.

The number of 60+ day delinquencies rose in October, to 3.4 million, up from 3.2 million.

Schwartz said she didn’t see any indications that loan modifications were slowing because lenders were devoting their resources to straightening out documentation issues. She said the disruptions among lenders due to the robo-signing controversy have been largely among the foreclosure side of the business, and that loan modification processes are still in place.

“My view of all that is in the next few months we’re going to see some things that aren’t really trends, but seasonal changes,” she said. “One month is a bit too early to make a trend.”

Meanwhile, the number of government-backed Home Affordable Modification Program (HAMP) loan modifications continued to decline in October, with only 23,750 approved for permanent status, down from 27,840 in September. HAMP loan modifications have been steadily declining since last spring, as more stringent guidelines for trial loan modifications took effect and the pool of potentially eligible homeowners shrank.

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